Friday, October 23, 2015

Decmil Group

Decmil (ASX:DCG) offers design, construction and accommodation services to mining and government sectors. The share price has been absolutely hammered (down 50% in the last year, 70% in the last 3 years) because of the mining pullback in Australia. However, the company remains profitable and has managed to diversify away from mining into building bridges, schools and other infrastructure.

Page 14 of the annual report shows where it expects its 2016 revenue to come from: http://www.asx.com.au/asxpdf/20150826/pdf/430swdshv9w963.pdf

Because of the pessimism, this company trades at a P/E of just 4! It made $40 million in fiscal 2015, and yet it trades for just $160 million! In addition, the company has a net cash position of $45 million!

Even if profits were to drop by half this year, to just $20 million, that makes a P/E ex-cash of just 6. The company uses its earnings to buy back shares and pay a dividend. The dividend over the last 12 months provides a yield of 12.5% on the current price, which is a payout ratio of 54% of earnings.

Management appears very competent, as they have generated good returns on capital. Where they don't generate good returns (e.g. potentially in their accommodation sector), they are considering selling assets. Since the company trades at about half of book value, such a sale would be very good news for shareholders if it took place anywhere close to book value.

This is another stop in my tour of Australia, where I'm finding terrific value thanks to the downturn in commodities. Wish me luck!

Disclosure: Author has a long position in shares of DCG

4 comments:

juan said...

Very interesting, Saj. Thanks for the write-up.

Unknown said...

Noce one saj. Im in Australia and have been looking for some Valu coverage of stocks in the ASX. When i run net-net screens on the market here it is dominated by mining and exploration stocks. Good luck

Anonymous said...

I notice that in the latest Annual Report they have not made any reference at all to the order book. It has been in all the recent annual reports up until 2014 so its omission is clearly deliberate and shows a lack of transparancy imo. What are they trying to hide from us?

Looks interesting though, and they've managed to grow revenue quite well from public sector work in only a couple of years.

Unknown said...

Looks like DCG have acquired another company in recent days.

Refer to the asx website